Rate of Recovery for Bay Area Real Estate Speeds Up

January 16, 2013

La Jolla, CA.--The pace at which the Bay Area housing market is making up for lost ground quickened at the end of 2012 as sales increased year-over-year for the 18th month in a row and the median price rose at its fastest rate in more than 25 years. The market remained constrained by a tight supply of homes for sale and a fussy home loan environment, a real estate information service reported.

The median price paid for a home in the nine-county Bay Area was $442,750 in December. That was up 1.1 percent from $438,000 in November and up 32.0 percent from $335,500 in December a year ago. Last month’s median was the highest since August 2008 when it was $447,000, according to San Diego-based DataQuick.

The 32.0 percent year-over-year increase in the median is the highest in DataQuick’s statistics, which go back to 1988. At least half that increase is due to a change in market mix, with sales shifting away from low-cost distress homes toward more mid-market and move-up homes.

The median reached a high of $665,000 in June/July 2007 and then fell to a low of $290,000 in March 2009. On a year-over-year basis it dropped more than 30 percent each month from August 2008 through May 2009. At the median's current rate of increase, sometime this spring it will have recovered about half of its loss since its summer 2007 peak.

“Prices are in the midst of bouncing off bottom right now, and nobody really knows what the trajectory of this bounce will be beyond this point. So far, supply has been a bottleneck, but as prices go up, more homes will be put up for sale,” said John Walsh, DataQuick president.

“Another bottleneck these days is that mortgage lenders are swamped. Not only by home buyers, but by homeowners who want to refinance. Rising home prices also mean higher appraisals, and tens of thousands of homeowners who couldn’t refinance half a year ago, now can,” Walsh said.

The number of new and resale houses and condos sold last month in the Bay Area was 7,832. That was up 7.3 percent from 7,296 in November, and up 4.5 percent from 7,494 for December 2011.

While last month’s sales count was the highest for any December since 8,372 were sold in 2006, it was still 9.0 percent below the 8,611 average for all Decembers since 1988. December sales have ranged from 5,065 in 2007 to 12,349 in 2003.

The number of homes sold for less than $500,000 decreased 12.6 percent year-over-year, while the number that sold for more than $500,000 shot up 61.2 percent, DataQuick reported.

Last month distressed property sales – the combination of foreclosure resales and “short sales” – made up 34.2 percent of the resale market. That was down from 35.5 percent in November and down from 52.4 percent a year ago.

Foreclosure resales – homes that had been foreclosed on in the prior 12 months – accounted for 11.8 percent of resales in December, down from a revised 12.5 percent in November, and down from 27.8 percent a year ago. Last month was the lowest since 10.1 percent in November 2007. Foreclosure resales peaked at 52.0 percent in February 2009. The monthly average for foreclosure resales over the past 17 years is about 10 percent.

Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 22.4 percent of Bay Area resales last month. That was down from an estimated 23.0 percent in November and down from 24.6 percent a year earlier.

Jumbo loans, mortgages above the old conforming limit of $417,000, accounted for 40.2 percent of last month’s purchase lending, down from a revised 40.3 percent in November, and up from 26.5 percent a year ago. Jumbo usage dropped to 17.1 percent in January 2009. Before the credit crunch struck in August 2007, jumbos accounted for nearly 60 percent of the Bay Area purchase loan market.

Adjustable-rate mortgages (ARMs), an important indicator of mortgage availability, accounted for 11.1 percent of the Bay Area’s home purchase loans. That was down from a revised 12.0 percent in November, and down from 11.6 percent in December last year. Since 2000, ARMs have accounted for 48.7 percent of all purchase loans. ARMs hit a low of 3.0 percent of loans in January 2009.

Government-insured FHA home purchase loans, a popular choice among first-time buyers, accounted for 18.9 percent of all Bay Area home purchase mortgages in December, up from 17.0 percent in November and down from 22.9 percent a year earlier. In recent months the FHA level has the been the lowest since summer 2008, reflecting both tougher qualifying standards and the difficulties first-time buyers have competing with investors and other cash buyers.

The most active lenders to Bay Area home buyers last month were Wells Fargo with 15.5 percent of the market, RPM Mortgage with 4.2 percent and Stearns Lending with 3.4 percent.

Last month absentee buyers – mostly investors – purchased 25.8 percent of all Bay Area homes, an all-time high (absentee statistics go back to January 1999). Last month's absentee level was up from 24.9 percent in November, and up from 23.8 percent a year ago. Absentee buyers paid a median $315,000 in December, up 34.0 percent from $235,000 a year earlier.

Buyers who appear to have paid all cash – meaning no corresponding purchase loan was found in the public record – accounted for 29.3 percent of sales in December. That was unchanged from November, and up from 27.3 percent a year ago. The monthly average going back to 1988 is 12.5 percent. Cash buyers paid a median $312,500 in December, up 36.2 percent from $229,500 a year earlier.

San Diego-based DataQuick monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts. Because of late data availability, sales were estimated in Alameda, San Mateo and San Francisco counties.

The typical monthly mortgage payment that Bay Area buyers committed themselves to paying last month was $1,561. That was up from $1,544 in November, and up from $1,336 a year ago. Adjusted for inflation, last month’s payment was 44.9 percent below the typical payment in spring 1989, the peak of the prior real estate cycle. It was 59.3 percent below the current cycle's peak in July 2007.

Indicators of market distress continue to decline. Foreclosure activity remains high by historical standards but well below peak levels reached three years ago. Financing with multiple mortgages is low, down payment sizes are stable, DataQuick reported.